Medtronic 2011 Annual Report Download - page 33

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Medtronic, Inc.
Europe during fiscal year 2010. In addition, Revel was launched
in the U.S. in the fourth quarter of fiscal year 2010. The launch
of this system extended our line of sensor-augmented therapy
options available on the market.
• Given the elective nature of an insulin pump and CGM for the
management of diabetes and the possible high out-of-pocket
costs to the customer, macroeconomic pressures could
negatively impact the near-term sales growth within the
Diabetes business.
• Continued acceptance of the StealthStation S7 and O-Arm
Imaging Systems, especially with the launch of Synergy Spine
2.0 and the O-Arm 3.1.2 during fiscal year 2011.
• Market acceptance of the NIM 3.0 Nerve Monitoring System.
Costs and Expenses
The following is a summary of major costs and expenses as a
percent of net sales:
Fiscal Year
2011 2010 2009
Cost of products sold 24.6% 24.1% 24.1%
Research and development 9.5 9.2 9.3
Selling, general, and administrative 34.734.2 35.3
Special charges — — 0.7
Restructuring charges 1.6 0.3 0.8
Certain litigation charges, net 1.5 2.4 4.9
Acquisition-related items 0.1 0.1 4.3
Other expense, net 2.9 3.0 2.7
Interest expense, net 1.7 1.6 1.3
Cost of Products Sold Cost of products sold was $3.912 billion in
fiscal year 2011, representing 24.6 percent of net sales, reflecting
an increase of 0.5 percentage points from fiscal year 2010. Cost
of products sold as a percent of net sales was negatively
impacted by 0.3 of a percentage point due to a shift in product
mix, 0.3 of a percentage point primarily driven by unfavorable
manufacturing variances, and 0.1 of a percentage point due to the
$11 million cost of sales component of our fiscal year 2011
restructuring initiative, partially offset by 0.2 of a percentage
point of favorable foreign currency translation. We continue to
execute our five-year planned broad initiatives to reduce our cost
of products sold by $1 billion by fiscal year 2012.
Cost of products sold was $3.812 billion in fiscal year 2010 ,
representing 24.1 percent of net sales, reflecting no change from
fiscal year 2009. Cost of products sold as a percent of net sales
was positively impacted by 0.4 of a percentage point of favorable
margin variance and 0.4 of a percentage point of favorable scrap
and other product costs, offset by 0.4 of a percentage point of
unfavorable inventory revaluation variance, 0.3 of a percentage
point of unfavorable foreign currency translation, and 0.1 of a
percentage point of unfavorable product mix variance.
Research and Development Consistent with prior periods, we
have continued to invest in new technologies to drive long-term
future growth by spending aggressively on research and
development efforts. Research and development spending
was $1.508 billion in fiscal year 2011, representing 9.5 percent
of net sales, an increase of 0.3 of a percentage point from fiscal
year 2010.
Research and development spending was $1.460 billion in fiscal
year 2010, representing 9.2 percent of net sales, a decrease of 0.1
of a percentage point from fiscal year 2009.
We remain committed to developing technological
enhancements and new indications for existing products, and less
invasive and new technologies for new and emerging markets to
address unmet medical needs. That commitment leads to our
initiation and participation in many clinical trials each fiscal year
as the demand for clinical and economic evidence increases.
Furthermore, we expect our development activities to help
reduce patient care costs and the length of hospital stays in
the future. In addition to our investment in research and
development, we continue to access new technologies in areas
served by our existing businesses, as well as in new areas, through
acquisitions, licensing agreements, alliances, and certain strategic
equity investments.
Selling, General, and Administrative Fiscal year 2011 selling,
general, and administrative expense was $5.533 billion, which as
a percent of net sales increased by 0.5 percentage points from
fiscal year 2010 to 34.7 percent. This increase was primarily driven
by the effects of recent acquisitions, executive separation costs,
and additional bad debt reserves in certain markets, including
Greece. We continue to focus on several initiatives to leverage our
expenses while continuing to invest in new product launches and
adding to our sales force in faster growing businesses and
emerging markets.
Fiscal year 2010 selling, general, and administrative expense
was $5.415 billion, which as a percent of net sales decreased by
1.1 percentage points from fiscal year 2009 to 34.2 percent. For
fiscal year 2010, our initiatives to leverage our cost structure
helped reduce selling, general, and administrative expense. This
decrease was partially offset by an increase in legal expenses
driven by an increasing amount of government scrutiny on the
medical device industry compared to the prior fiscal year.